Climbing a little higher in Euromoney’s country
risk survey to 82nd out of 186 sovereigns worldwide –
rising eight places in three years – Vietnam has
gradually become safer, signalling its credit ratings are
outdated, not least the B1 rating from
Moody’s.

Its rise within the fourth of ECR’s five tiered
categories, encompassing credits up to BB+, has continued in Q4
2015, according to the provisional results of
Euromoney’s crowd-sourcing country risk
survey.

Vietnam’s score trend keeps it well ahead of
tier-five Bangladesh – a safer bet according to
Moody’s – and is narrowing the
risk-differential with Sri Lanka, another export-dependent
economy, as survey experts award higher risk-factor scores:

Soaring growth

Vietnam already has one of the fastest-growing economies in
Asia, and prime minister Nguyen Tan Dung is promising even
faster expansion through to 2020.

IMF forecasts signal this year’s 6% real GDP
growth will rise to to 6.5% in 2016, alongside which there will
be continuing low inflation and unemployment.

ECR expert Li Yan, professor of economics at the
Université du Québec en Outaouais, believes
"economic risks in Vietnam are decreasing because of its better
export performance during the past months".

Another of ECR’s survey contributors, Max Schieler, a senior country risk
specialist with RobecoSAM, agrees, saying: "Economic
performance has regained momentum and robustness compared to
some years ago when Vietnam went through a rather delicate
period.

"Vietnam has been able to strengthen its foreign trade and
to softly diversify its export structure away from just lower
value products and into more high technology products, such as
electronics or computers."

This is supporting the current account, boosting reserves
and feeding into domestic demand, raising investment and
private consumption supported by credit growth.

Everything in moderation

That’s not to say there aren’t
still risks to be aware of.

Vietnam’s cultural and political framework is
unlikely to change, which is a problem not least in terms of
corruption, a lack of transparency and repression under
Communist Party rule.

There are still vulnerabilities in the banking sector,
limiting credit extension to local small and medium-sized
enterprises.

Added to that there are foreign-policy risks stemming from
the maritime dispute between China and other countries,
including Vietnam, bordering the South China Sea.

This concerns territorial claims to subsea oil deposits and
a group of islands offering China a military advantage
– a crisis which is escalating with China refusing to
heed the Law of the Sea Convention, and will need to be
monitored.

This will lead to banking sector consolidation and has seen
some attempt to resolve the non-performing loan (NPL) problem
weighing down the banks after they were hit with credit losses
in the wake of the global financial crisis – even if
the official rate of NPLs, now comprising 2.9% of total loans,
is undoubtedly massaged by the authorities.

The government has been slow to privatize state-owned
enterprises, but has made a good start on eradicating red tape
and is behind Vietnam’s improving reputation
for doing business.

The country has a fairly low level of short-term debt, too,
the authorities have opened up the real-estate sector to
foreign investment, and the country will benefit long-term from
participation in the
landmark Trans-Pacific Partnership (TPP) trade deal
affecting some 40% of the world’s GDP.

More can be done for sure to ensure Vietnam is a more
balanced and attractive market with a stronger banking
sector.

However, its low-wage, export-driven economy suggests it
will be one of the main beneficiaries from the increased market
access for its clothing, footwear and seafood products stemming
from reduced tariffs in the Japanese and US markets.

This article was originally published by ECR. To find out
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